Lecture 2 theories and models of consumer behavior

THEORIES AND MODELS OF CONSUMER BEHAVIOR

Prof. SAVICA

DEFINING A MODEL OF CONSUMER BEHAVIOR

--- it is an attempt to structure the internal and external factors that affect the decision making process

• Predicting consumers behavior

• Sales of new products

• Choosing the optimal location

• Selection of the media mix

DEFINING A MODEL OF CONSUMER BEHAVIOR

Origin: 1960-es, comes from companies need to know more about consumer behavior in order better to plan their marketing strategies

and actions

CONSUMER BEHAVIOR APPROACHES

Traditional approach

Consumer is rational

Consumers require maximum utility for their money

Modern approach

Consumer is not always rational

Needs – Motives - Decision

MODELS OF CONSUMER BEHAVIOR

Disadvantages

Very complex

Theoretical, inapplicable

Overestimated

Mathematical, abstract

Expensive

Useless for marketing decisions

MODELS OF CONSUMER BEHAVIOR

Advantages

Many factors explained

Predict the future market structure

Extensive marketing research

Identification of knowledge gaps about the consumersbehavior

Communication between model and management explained

I. THEORIES OF CHOICE AND PREFERENCES OF CONSUMERS

Common features

The consumer has income, knows the products, prices and chooses the combination with maximum efficiency

The consumer has the preference scale, ranks goods by income or price

Consumer is consistent, he compares and looks for the most favorable combination

Theory of revealed preference

Game theory

Theory of indifference


Theory of indifference

Consumer needs are met by a combination of products, and at the same price and income, consumers are indifferent because

the combination of products bring them equal benefit

Edgeworth (1881), Pareto (1906), Allen, Hicks (1934), Marshall

combination apple kiwi

А 15 1

B 11 2

C 8 3

D 6 4

E 5 5

Plan for indifference is a

list of various combinations of

products that offer the same

utility (satisfaction) to

consumers

I. THEORIES OF CHOICE AND PREFERENCES OF CONSUMERSTheory of indifference

Indifference curve

А

B

C

DE

Points that are combinations of two products that bring equal benefits to the consumer

Indifference map

ic1ic2

ic3

The graph shows a set of indifference curves. All points on the same curve give same satisfaction, and all points on the higher-placed curve bring higher satisfaction.


Theory of revealed preferenceConsumer preferences are revealed through their consumer habits. When a consumer selects a combination of products,

that combination compared to others becomes revealed preference

Revealed preference is when a consumer chooses a combination

of 2 apples and 3 bananas, rather than a combination of 3

bananas and 2 apples. First combination is treated as a

revealed preference in relation to the second. The consumer

always prefer the first combination and he will purchase the second

only if the first is not available. He buys what he prefers and what is

cheaper!

American economist, Paul Samuelson, 1948


Game theory

Predicting the results of a strategic game in which participants have incomplete information about the intentions of other

players. The game depends on experience, risks, the player's character, and the result is known after the game.

Two prisoners dilemma:Tom and Robin are prisoners

caught for the same crime. Placed in 2 different rooms for

questioning, without communication between them. Everyone has two choices, to confess or not to confess the

crime. What is the best decision for each prisoner?

John von Newmann and Oscar Morgenstern , 1944

To confess

Not to confess

To confess

3 , 3 1 , 10

Not to confess

10 , 1 2 , 2

Tom

Robin


Game theory

Two prisoners dilemma

To confess

Not to confess

To confess

3 , 3 1 , 10

Not to confess

10 , 1 2 , 2

Tom

Robin

Nash equilibrium – the best solution: Both of them to confess the crime!

Maximum best outcome: Robin confesses =1 year prison (Tom doesn’t confess), Robin doesn’t confess = 2 years prison (Tom doesn’t confess) = the best outcome= to confess!

Minimum best outcome: Robin confesses = 3 years prison (Tom confesses), Robin doesn’t confess =10 years (Tom confess) = the best outcome= to confess!

Dominant strategy (Nash equilibrium) = maximum equals minimum outcome = both prisoners to confess!

II. PSYCHOLOGICAL THEORIES OF CONSUMER BEHAVIOR

Common features

Decision making process is based on the psyche of the customer (internal factors)

Genetics

Environment

Human activities

Mental state, personal characteristics

Theory of Clinical psychology

Бихејвиористичка теорија

Experimental theory

Theory of Gestalt psychology

Theory of Social psychology


Experimental (laboratory) theoryConsumer behavior depends on the instincts of a person.

Instincts can be inherent (lower level) and learned (classical conditioning).

Learning is a process of association and repetition.Russian physiologist Ivan Pavlov , 1920

stimulus reaction

Pavlov modelUnconditional stimulus = inherent, permanent response to outside influence

Conditioned stimulus = learned reaction, reaction of conditioned stimulus

II. PSYCHOLOGICAL THEORIES OF CONSUMER BEHAVIORExperimental (laboratory) theory

Classical conditioning = the process by which a

neutral stimulus leads to a positive

answer, because it is consistently and repeatedly paired

with a stimulus that naturally causes a positive response.


Experimental (laboratory) theory

II. PSYCHOLOGICAL THEORIES OF CONSUMER BEHAVIORExperimental (laboratory) theory

Classical conditioning of consumers

beautiful woman

beautiful woman

car

positive reaction

positive reaction

car positive reaction

In marketing, nice events cause positive feelings. If the event is associated with the brand and is

repeated many times, after a while the brand will cause positive

emotions!


Theory of Clinical PsychologyHuman behavior is motivated by unconscious, the repressed and subconscious motives. The human psyche is composed of

three major systems: the id, ego, super ego and these systems are in balance in a normal person.

Sigmund Freud, 1856-1939

ID = instincts, unconscious fantasies, painful tension

EGO = reality, experience, learning, link between fantasy and reality, action

SUPER EGO = morality, perfection


Theory of Clinical Psychology

ID – I want a chocolate!

EGO – take a little part!

SUPER EGO– you're on a diet!


Theory of Clinical Psychology

Human behavior is motivated by unconscious, the subconscious motives.

Subconscious motives are Thanatos (death) and Eros (life). The subconscious create

"unconscious needs," causing "unconscious strivings" to achieve "an unconscious goal."


Theory of Gestalt psychologyHuman behavior is based on recognition of the whole, not the

relationship between stimuli and responses. The whole is more than the sum of the parts of which is made. Human mind considers

objects in their entirety before, or in parallel with, perception of their individual parts

Christian von Ehrenfels, Koffka, Metzger, 1920 / Germany

Гешталт = лик, целина, облик, група



Principles:

Completing / ClosingContinuity



Principles:

Proximity

Similarity



Principles:Object and background



Same parts –Different objects



Phi phenomenon: static images give a sense of movement


Behavioristic Theory

People's behavior makes sense if it is observed and objective. What happens in the human brain is unknown, unmeasured and therefore is considered as a “Black box.“ Consumer behavior is

the body's reaction to external stimuli.

Skinner (1904-1990)

Learning = repetition of preferred actions+

rewarding good habits + punishment of

bad habits

Behavior is repeated

Behavior is not

repeated

Positive enforcement

Negative enforcement

Punishment

Pleasant stimulus

Unpleasant stimulus

Unpleasant stimulus



Behavioristic Theory

Positive enforcement = response is rewarded

Negative enforcement = response is followed by removal of unfavorable event (fasten your seat belt to disable the horn!)

Punishment = response is punished and behavior will not repeat again


Theory of Social psychology

People are social beings. The behavior of an individual depends on the group consciousness. This theory explains how people think,

act and influence one another.

William McDougall, 1908

If a person look towards the top of the building, all the other people will follow

shortly.

If a child is teasing another, soon, all the kids

will join the teasing.

III. MODELS OF CONSUMER BEHAVIOR ON THE MARKET FOR PERSONAL

CONSUMPTIONCommon features

Consumption is very heterogeneous and complex

Lot of participants

Many heterogeneous factors influence the purchase

Final consumption

Price and income elasticity of demand

Substitution and different needs

Economic models

Combined models

Socio-psychological models

III. MODELS ON THE MARKET FOR PERSONAL CONSUMPTION

Economic models

Buyer decision process is based on 4 elements: inputs, channels, processes and outputs

Philip Kotler

input channel process output

PriceQuality

AvailabilityServiceDesignStyle

MediaSellersFriendsFamily

Personal views

Buyer's black box

Buyer's response:

Product choiceBrand choiceDealer choice

Purchase timingPurchase amount



Consumer behavior depends on the sociological and psychological factors

Petz, Lazarsfeld, Howard and Sheth, Nicosia, March-Simon and Wurzburg



Consumer behavior depends on environmental factors and factors of social psychology

Lazarsfeld

Environmental factors Factors of social psychology

Attitudes

Sellers's opinions

Opinions of third parties

Giving priority to one brand over the others

Advertisements


Е1: preferable brands A and B

Е2: noticing advertisement for

brand B

Е3: seller's recommendation to

buy brand A

I1: attitude for the brands A and B

I2 : positive attitude for both brands, A and B

I3 : willingness to buy more brand B than A

I4 : Buying brand A

Т

Т+

Т+

Т+

Environment factorsТ = time

Factors of social psychology

Lazarsfeld model

Exposure Environmental impact

Disposition Motive

External factors Internal factors

Disadvantage: it explains the act of purchase and not the whole purchasing process


Simplified model of Lazarsfeld

Level of decision

Extensive

Limited

Routinized

А

Б

В

Early phaseLittle information about productsUndefined purchasing criteria

Advanced phaseWell-known purchasing criteria Consumer is still unsure what to buy

Consumer knows what he wants to buyWell-known purchasing criteria Consumer is ready to buy what he wants

Through learning


Howard and Sheth model


Howard and Sheth model

Phase 1:Predisposition

Phase 2:Attitude

Phase 3:Motivation

passivitymotivation


Nicosia model


Nicosia model

Search and Evaluation(additional information)

Consumption(satisfaction/dissatisfaction )

Buying decision(action)

Subfield 1:

Attributes of the company and its

products

Subfiled 2:

Consumer's attributes

message attitude

motivation

Purchasing behavior

feedback

Field 1 Field 2

Field 3Field 4


Nicosia model

Environmental Factors Characteristics of consumers

Market structure Number and type of producers Number and availability of brands Visibility of brands on the market -----

Experience of using the product Expected advantages of other brand Level of aspiration -----

Substitution of one product for another


March-Simon model

IV. COMBINED MODELS

Model of KatonaCommon features

Model of Preston Combination of:

Economic factors Sociological factors Psychological factors

Model of Katona

Economic factors

Consumption habits

Perception-physical-cognitive

Orientation to action

-attitudes-expectations

-motives

Buying

Disadvantage: it describes the act and not the purchasing process

Environmental stimulatorsConsumer

IV. COMBINED MODELS

Model of Preston

Internal factors

External factors

StimulatorsIncentives

Individual changes in consumer

Environment

Activities of sellers

Characteristics of consumers

DemographicEconomic

SociologicalPsychological

Other purchasing determinants

ReactionPurchase decision

Purchase decision

Decision to postpone buying

Experience

IV. COMBINED MODELS

TEST

Explain the following terms:

• Indifference map: -------------------------• Id, ego, super ego: ---------------------------------• Phi Phenomenon:-----------------------------------------• Elements of Howard and Sheth model:------------• Elements of Nicosia model:------------------• Game theory means:-------------------• Gestalt means:----------------------------------• Combined models are:---------------------------------------------• Behavioristic theory:--------------------------------

Lecture 2 theories and models of consumer behavior

Marketing

Transcript of Lecture 2 theories and models of consumer behavior